Fintech for Farming | The ripe solution to the struggles of small farmers

The country has a land area
of 30 million hectares, 47% of which are agricultural lands planted to rice,
corn, coconut, bananas, pineapple, sugarcane, mangoes, and other crops. It is
even one of the world’s major rice importers.

With drone in hand, Amparo inspects a tract of land with co-founders Rachel de Villa and Lester Wayne Pile

Yet, two out of three Filipino
farmers are poor. Eleven million of them subsist on P100 a day (about $1.9) or
around P2,000 a month — a pitiful amount for land cultivation and daily
expenses. Thus, many of them end up with little or no savings at all.

And so they turn to credit. But
barely have they started knocking on credit’s door that new problems begin
piling up. To begin with, they have no acceptable collateral to offer. Next,
they realize that the banks and financial institutions are far from their
villages.

And then they learn there’s
too much paperwork. When they do get their foot on the door, they come face-to-face
with the enormity of the interest rates: up to 120% per cropping cycle of six
months.

Under these conditions, life
for most farmers in the Philippines whose average age is 57 years old, may well
be as dry and barren as the lands that fell victim to drought.

However, for Mario delos
Reyes (not his real name) life has been a “bumper crop”.

Like other farmers, he also receives formal loans. But with his credit, Mario was able to expand his fingerling and petsay (Chinese white cabbage) businesses. He also supported two fellow farmers, Buboy and Felimon (not their real names) who later became his laborers.

Eventually, Buboy and Felimon
saved enough money to buy motorcycles and homes for their families.

So what is Mario up to that
most other farmers in the Philippines are not?

Cropital’s CEO and founder Ruel Amparo speaks to a group of farmers in Pilar, Bohol

Credit via fintech

For the past three cropping
cycles, Mario has been on Cropital, a peer-to-peer (P2P) lending platform for
smalholder farmers or those cultivating small land sizes.

The biggest of its kind in
the Philippines, Cropital has pruned the prospects for farmers,
weeding out the challenges and removing the “pests” which make the borrowing
and lending process difficult for them.

First of all, it connects
them with private lenders offering reasonable rates and companies with good
service. It is also collateral free.

Cropital’s CEO and founder
Ruel Amparo explained, “Cropital does this by developing technologies and tools
that can assess and reduce risk, and reduce the administrative cost of lending
to small farmers. Cropital being able to prove its economics would be vital to
opening up more fund sources that will be willing to lend to farmers.”

The fintech platform also
does not involve paperwork as everything is digitized. Cropital’s community
managers have their own tablets and use these to interview the farmers, collect
their information and requirements.

The system begins with a
vetting process for farmers. Amparo and his co-founders Rachel de Villa, who is
also chief technical officer, and Lester Wayne Pile, participate in farmers’ conventions
around the country to introduce the lending platform to leaders of farmer
groups recommended by either the local government unit or partner organizations.
The aim is to get the farmer leaders interested in bringing their members
onboard Cropital.

The next step is to undertake
credit scoring. Under this process, information gathered from application forms
and requirements are analyzed and scored.

The farmers who pass the
credit scoring process are then matched with lenders on the platform, most of
whom are young individuals working overseas or in Manila. These individual lenders deposit a minimum amount of
P5,000 into their Cropital account and then select the farmer(s) whom they
shall lend funds to every cropping cycle. The minimum amount they can lend is P5,000
while the maximum is P50,000.

They are not required to lend
every cropping cycle. But according to Amparo, many of these lenders shell out
money in increasing amounts.

Meanwhile, some of the
farmers receive the loans via check or remittances. The rest get theirs in the
form of agricultural input packages which include seeds, fertilizer, and crop
protection products delivered to them by Cropital’s partner stores.

Interest rate is between 8%
to 12%, which is 90% cheaper than
current rates. Of this, about 3.5% interest is given to the lenders while the
rest flows back to Cropital as revenue.

Companies, organizations, and
foundations also get to support the farmers in specific regions via Cropital by
putting up rice value financing schemes in these places.

Aside from funding, farmers
receive other forms of support. Among others, Cropital pre-identifies
buyers of their products at reasonable prices in order for the farmers to seal
the deal and secure good profits.

The P2P lending platform also
helps them access free government crop insurance under the Philippine Crop
Insurance Corporation.

Lastly, they are provided
with information on the best farming technologies and practices by partner
companies like Bayer and Norwegian chemical company Yara International.

“Our farmers are guided by
technicians on what are the best inputs to use, when to use them, and at what
quantity,” Amparo shared. “Following these well-researched practices tends to
increase the yield of the farmers.”

One of the first farmers to
join Cropital was Arsenio Pimentel (not his real name), 67. A farmer since the
age of 15, Arsenio is cultivating a 1.5-hectare land in Tuba, Benguet. The man
was in debt when he started with the fintech platform. But now, it has helped
ease his financial difficulties tremendously.

Farmers are allowed to borrow
every cropping cycle, said Amparo. “We, however, hope that they will reach a
point [where] they can sustain their own capital. It is actually our goal for our farmers to stop getting
loans, not only from Cropital but also from different lenders.”

Some of the farmers have
indeed stopped requesting for loans. Currently, the platform has around 80% retention rate on farmer borrowers. In Bohol,
retention rate fell after just one cycle since some farmers’ crop yield spiked
from 6 tons to 9 tons. This development was further bolstered by the very high
price of palay or rice come harvest time.

Targeting more farmers

Amparo himself is no stranger
to the plight of farmers. Having come from a family of farmers, the young man
from Bulacan saw his own grandparents’ struggles.

“I have seen how my family [would]
borrow capital every season at 5% interest per month, and never miss a payment.
Instead of having more profit, the interest payment could eat up the already
low income of the farmers,” he lamented. “I realized that this is both a
problem and an opportunity, ripe for a new solution.”

This solution now has 4,000
active lenders and has distributed 800 loans worth P35 million to more than 500
farmers in 22 communities across seven provinces.

These provinces are
Pangasinan, Bulacan, Pampanga, Batangas, Laguna, Leyte
and Bohol. Among the many communities it serves are Rice Up
Floridablanca, Rice Up Lubao, Padre Garcia, Santamasi Irrigator’s Association,
and others.

One of the farmers’ groups or communities which Cropital supports

Cropital, which achieved
operational break even in 2018, also has a record of 94% on-time payment of
loans.

Though Cropital has made
remarkable strides since its establishment in 2015, its CEO admits 11 million
small farmers in the Philippines still need their assistance.

Unlike Mario, this lot of 11
million do not have a “bumper crop” of good fortune and great opportunities on
their side. Instead, they continue to struggle with their finances, fall prey
to predatory loans, and thus fail to secure a bright future for their families.

“By 2030, hopefully, we’ll be
able to reduce the number of predatory loans that are existing. With our mission to continually provide an
ecosystem where farmers could actually thrive and stop being dependent on
loans, this is actually the one that we want [every farmer and willing lender] to
join,” Amparo said.

For now, however, farmers
onboard Cropital are truly harvesting the benefits offered by the fintech
platform. And as it continues to reach out to more small farmers in the
country, it is also proving itself as a ripe solution to their problems which
helped characterize Philippine agriculture for a long time.

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